A few thoughts I found online:
Standard economic theory says that investors will flock to economies that are growing faster, and to do that, they need to buy the currency of that economy. - With the US economy slowing down, why would the dollar go up?
______________________________________________________________________
The value/spot price of gold and our economy are inversely related. Our economy is based on currency which is fiat or “faith based” - meaning that it is worth only the value of the actual paper it is printed on. The stock market is a reflection of our American dollars at work to determine how we value our nation's businesses and corporations. As our country continues to struggle through the recession and our dollar begins to weaken - the stock market declines which causes investors to look for something else to put our trust in.
Enter gold...
Gold is recognized as the true standard of value across the globe. It is a standard for world wide exchange and has been since the dawn of time. It maintains it's value from one country to another and is not subject to the same systematic risk the stock market is.
So when we experience market decline, stocks and the dollar moves downward. They become less desirable. Gold then becomes more desirable and according to the law of supply and demand it's value increases as well.
_____________________________________________________________________
In times of less faith in currency, investors flood to commodities.
When there are high levels of national debt it makes sense for governments to let inflation rise, reducing the amount that they have to pay back to purchasers of government bonds.
This also diminishes the value of any savings that people may have. To counter this, investors purchase commodities. The theory being that their supply is scarce and so value is likely to remain the same.
It may sound alarmist but if worse comes to worse, and people lose faith in the currency of a country (which, bare in mind, is only backed by the guarantee of a solvent government) investors will always have the commodity, which people still need. It is therefore regarded as a safer investment in times of turmoil.
Gold is the defacto commodity as there is limited supply and, at one point global currencies were backed by gold (meaning £1/$1 etc was worth a certain quantity of gold). There is also a belief that if a currency was to collapse there would be a rush to return to the gold standard, which may spur some to invest in particularly tough times.
"I'm just a kid with adult responsibilities"
AI
